I'm founder of the Gold Standard Institute USA in Phoenix, Arizona, and CEO of precious metals fund manager Monetary Metals. I created DiamondWare, a technology company which I sold to Nortel Networks in 2008.

Thomas Piketty Pens Communist Manifesto for 21st Century

Thomas Piketty is a Frenchman who had been promoting wealth redistribution in obscurity. Now that Harvard University Press has published his book, Capital in the Twenty-First Century, he has catapulted into the spotlight.

I didn’t read his book, though you don’t have to in order to understand why it’s mostly wrong. Piketty makes an observation, a diagnosis, and a prescription. His observation is right, so let’s start there.

R > G

Piketty says that return on capital is higher than the growth rate. He believes the return on capital is 5 percent and the growth rate is 1 percent. The share of wealth owned by the rich is increasing.

Consider Exxon Mobil. Today, it’s worth over 400 billion dollars. If Piketty is right, it will be worth over a trillion in 20 years—a multiple of its current value. Compare to your salary. If you earn a hundred grand today, you’ll be making $122,000. Owners are getting farther and farther ahead of workers, or in Marxist terms, capital is taking what belongs to labor.

The Marxist views the economy like a pie that doesn’t grow, so the only thing to do is squabble over the division of it. Remember as a kid, sharing a pizza with siblings? The older ones take fat wedges, and the youngest gets a skinny sliver. Piketty claims that everything will eventually be owned by family dynasties, in “patrimonial capitalism”.

He is right that there is a massive wealth transfer under way. I wrote an article last fall showing that real wages have been falling for decades. However, his diagnosis is faulty. The Financial Times and others now cast doubt on the integrity of his data, but that’s the lesser point.

Piketty thinks that capitalism is the cause, but wealth transfer has nothing to do with capitalism. Look at what Steve Jobs and Steve Wozniak did in a relatively free part of the market. Apple doesn’t hog anyone’s pie. It makes money by creating new pies. Apple customers, poor and rich alike, are better off for having graphical computers and tablets.

Piketty’s data does not come from capitalist economies, because no country in the world has capitalism. They never did, though the United States once came close. He makes a fatal error by saying capitalism and the free market are causing rising inequality.

Governments intrude in markets in every way, but let’s just look at central banks like the Federal Reserve. The Fed is the central planner of money. Everyone uses money, which means everyone depends on the Fed’s decisions. By definition, it’s not a free market when the government sets the most important prices.

While no one can take your piece of pie in a free market, it’s a piece of cake for the Fed. Suppose you had a twenty-dollar bill in 1970. It could buy enough gas to fill two cars. If you hid it under the mattress, and took it out today, it now buys about 5 gallons. Most of the value of that bill was sliced off by the Fed’s policy of debasement. This is a direct transfer of wealth, taken from the saver.

From each according to his ability, to each according to his need (Photo credit: Wikipedia)

For his prescription, Piketty’s takes two planks straight out of The Communist Manifesto. The first is an 80 percent tax on income. Think about that. You work and take risks, and the government steals the lion’s share. Why would anyone bother?

The second is to impose a tax on wealth too. Every year, you will have to add up the value of your wealth and forfeit a percentage. This hurts everyone, of course, but think about a family farm or startup business. It might be worth millions according to the IRS, but you will have to find something to sell so you can pay. The wolf will be back at your door every year, until you lose your assets.

Sure, these taxes will equalize wealth—the way chopping off the legs of tall people equalizes height. Piketty is clear that this is his goal. He doesn’t propose taxes merely to raise revenues. His goal is to keep anyone from growing wealthy.

Post Your Comment

Post Your Reply

Forbes writers have the ability to call out member comments they find particularly interesting. Called-out comments are highlighted across the Forbes network. You'll be notified if your comment is called out.

Comments

right. Everything is fine. Just wait, ‘they’ll’ make it rain any minute, now. Using Apple as uour medifore illustrates the author’s ignorance: Jobs was the greatest pioneer in outsourcing virtually all hardware tech jobs to other countries. They researched and came very close to outsourcing tech supporrt as well, until they figured out their customers wern’t talking to, essentially, white techies on the phone about their crashintosh. Yea, the wizz kid Jobs was so smart that he couldn’t figure out how to die with billions in his pockets while producing american-made products. No, instead, he flat out told the president of the united states that ‘those jobs are never coming back’. What a true American.

Ring around the rosie, pockets full of billions, ashes ashes, we all fall down.

Smart people don’t go to Harvard. Privileged/entitled people go to Harvard. Anything that comes out of that institution is extreme left-wing political trash.

If those communists policies were implemented, the economy along with society would utterly collapse. The US is already slowly collapsing from adopting some socialist policies. If we adopted them all at once, there would not be a country to speak of.

Yep, Dr. Keith Weiner, PhD graduate from the prestigious school of Cracker Jacks. I always wonder why Forbes is so ashamed of his writers that he never truly give you a real bio of his staff like real economic publications. This guy is still pushing the gold standard. Anyone buy gold some years back? How is that working out for you with that hyper inflation that is coming any day now for the last 7 years. How good does it feel listening to a clown like Weiner screaming “Buy Gold” @ $1900 an ounce only to find his buddies all sold their gold and the sucker is stuck with a couch cushion full of gold worth, What is it currently Mr. Weiner? $1240 an ounce today? Wow, fight inflation with the deflation of gold. How long can a person be taken seriously when everything he says is historically proven wrong.

I agree with one thing Mr. Weiner claims, socialism is kill the world economy, Corporate Socialism that is.

Do really have a degree Mr. Weinner? Did you pay someone to write your papers? How in the world can you speak about anything without even reading the material? Simply a lazy man. Simply a Court Jester entertaining the rule of the Oligopoly.

“I didn’t read his book, though you don’t have to in order to understand why it’s mostly wrong.” …. What? How can Forbes publish this person’s article? It’s very disappointing to allow the Forbes’ standard to sink this low.

Forbes has been publishing Keith’s incredibly poor articles for awhile now. I’m actually starting to wonder if Keith is a Leftist “plant”, deliberately trying to discredit pro-capitalist views by presenting the most superficially ignorant ideas about economics with the poorest argumentation and worst logic.

Thank goodness I’m not paying for a subscription to Forbes if they allow this stupidity to be posted on their website as if this guy knows what he’s talking about. He hasn’t even read the guy’s book for Christ’s sake. Forbes, when can I write a column about something I don’t have a clue about???

Keith, the mistake you make is the same most economists make, they don’t take into account human psychology. It doesn’t matter if there is plenty of pie to go around, and it does not matter if people are sated. If the pie is cut into slivers with a huge portion left for the ultra-rich, discontent is created. It doesn’t matter whether or not that discontent is fair, it is created, and this kind of discontent leads to social unrest, and that leads to extremist political situations. The question becomes; what amount of imbalance can be tolerated by a society before the imbalance results in an extreme political change? I believe, if we continue on our present course, extremist socialism is inevitable and confiscation of wealth will follow.

Stanley: Let me get this straight. Our semi-socialist system is transferring wealth. This creates discontent. And the result will be more demand for … socialism.

That aside, you’re describing envy. I grant that there are people who, even if they have everything they earned and everything they need, will resent and hate anyone who has more. We shouldn’t institutionalize envy via the tax code.

An economic system that allows a very small number of extremely wealthy people to control everything is both unhealthy and dangerous. When I toured Versailles, my sympathies were strongly with the farmers who stormed it with pitchforks. I hope we can avoid that path in the U.S.

Bob I’m inclined to agree, and I believe in markets and market forces (done right: transparent, sans cronyism, only lightly regulated by govt, but regulated nonetheless, and on occasion driven by self-extinguishing tax policy that adjusts capital allocation to favor innovation and job growth over just making a “killing”).

Capital should be re-invested not only on a optimized basis that looks purely at risk and return. Govt tax policies should favor investments that favor true innovation and growth domestically and favor creation of jobs – even if the set of investments and jobs created are a bit too broad and too many than needed for “optimum capital allocation”. If you want a rough example think about how defense spending was allocated in the US 1945-1990.

Key elements of a society rich, interesting, and “worth living in” are paths to reaching one’s personal potential, finding multiple, broad, and fruitful economic and social opportunities for oneself and one’s family, and living in harmony with a fair distribution of true power between wealth (or well-connected) insiders and everyone else.

Today, people are struggling to make ends meet, even folks such as myself (a professional that when paid makes well above middle income). We worry constantly about hidden inflation, health care, funding retirement, spending down our savings, claw-backs of promised pensions (just heard an example of that), and most important, holding onto our jobs.

A small entrepreneur such as myself sees concentrations of capital that are growing in risk-aversion and increasingly unwilling to share potential winnings with my firm. To me it looks like excessive greed, and may partly be thus, but the behavior also stems from managers’ worry that capital must be preserved rather than put at (increasing?) risk in the great “out there”.

Whether Piketty’s prescription of punitive taxes on income and wealth are the right path I would say “probably not”. But something must be done to share more of current income and wealth with a broader set of groups in society because it was those prescriptions in part – which stemmed partly from reforms in the 1930s – that led to the America I recall from my youth – full of opportunity, more fair, and with jobs for all.

Our security and prosperity as a country depends on recognition that a broad and prosperous middle class, rich with personal opportunities from banal to sophisticated, from low return to high return, is one of the most important strengths of any advanced society. The alternatives are ugly and could include significant civil unrest.

You one percent, or maybe just you one-tenth of one percent, to the barricades! Just as in Kiev soon those masses — including the 47 percent of the population that are moochers and takers — are going to form their Piketty line on the U.S. equivalent of the Maidan, or Tahrir Square and insist that you oligarchs and your corruption give up two percent of your income so that the stagnation of America can be broken and the country can grow again! But you got your guns and your thugs and you can resist, and you can throw your heavy unread Piketty books at them! Off to Sara Palin’s death panels — but throw several more billion dollars into the casino of the London derivatives market before you go! (I went to Harvard, and I wasn’t privileged — except that I had a U.S. Navy ROTC scholarship, which makes me a moocher and taker.)

Keith didn’t write this essay anyway, it’s far too well-written compared to his usual frumpy writing style (though he is undoubtedly the source of the poor logic and argumentation). Who is your ghost-writer, Keith?

I understand better why I stopped reading Forbes years ago, allowing to print such intellectual dishonesty, rather crass demagoguery seems a sign of the times in many right wing circles. For such an opinionated posture regarding TP book the least would have been to read it. Sorry I added to your ratings.

You really can see why Forbes is a joke with crayon writers like Weiner. I looked all over the place for a bio on him. I finally found someplace where he claims to have a PhD from The Austrian School of Economics. This is not a real school. It is a philosophy. Anyone with a PhD would have certainly read the material before criticizing the thesis. Could anyone going to grad school really think they could get away with a paper stating, ‘I never read the reading but I didn’t have to in order to understand’. I have to agree with another poster, Forbes has become simply a right wing tool to support the pro-business conservatives and just like the social conservatives and the tea party, the live in a delusional mind state. They call themselves Austrian Economist. The joke there is that Reagan and Thatcher clung to Austrian principles and working class has been dwindling ever since. We have seen bigger a greater bubbles and stagnant wages. They blame it all on government intervention, monetary policy, or taxes but never really look at how their policies have really placed this nation on a path to third world status. It is all about profits and shows no regard to a dying democracy, monopoly powers, or social decency. They are personal cheerleaders for the 1% and have no problem with the fact that the one percent has the power to personally write legislation or fund the influence that moves the masses to vote against the best interest. They live in Ivory towers and truly believe they are the chosen ones to dictate to the masses what economic policies are best.